Time to Think Strategically, Prudently With Zalicus (ZLCS)

It's fun to be right, especially when it comes to picking stocks. Sometimes though, you can be a little too right, too fast, forcing a change in the game plan. Well, the good news/bad news is, I was too right, too fast with Zalicus Inc. (NASDAQ:ZLCS). Back on August 30th I pegged ZLCS as a buy-worthy trade, when it was trading at $0.71. It hit a peak of $0.93. That's a move of 31% in just two trading days. Though the gain has since been whittled down to 'only' 17% thanks to the retreat to the current price of $0.834, shares are still overbought, and I still have to advocate selling your short-term trade on the position.

I know that's not going to be a popular idea among those newcomers who jumped into a trade yesterday or today based on the stock's new-found strength. ZLCS may be red hot, but the pace of the move isn't sustainable. In fact, the strength has already waned into non-existence.

The nearby chart of Zalicus Inc. tells the tale. I happened to see the stock starting to work its way above key moving averages in late August, and doing so on rising volume.... a telltale sign of a brewing bullish storm. Sure enough, off she went - the very next day, in fact. Unfortunately, the jump from the very next day (Tuesday) was so strong that it happened to leave behind a gap. The market generally doesn't like to leave gaps unfilled, which was strike one against ZLCS.

Strike two came today, when ZLCS left behind another bullish gap at the open. With far more to lose than to gain from that point, traders started deciding to lock in gains, pushing Zalicus Inc. lower as a result. This morning's opening gap has been filled in the meantime, but the one from yesterday morning is still open, and still begging to get filled in. Given how the tone and mood has changed just this morning, the odds favor that gap being filled.

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Just for the record, this isn't necessarily a long-term call on Zalicus. In fact, it's explicitly NOT a long-term call. Though volatile, all the hints the stock's been dropping since early August are actually long-term bullish hints. That doesn't mean we're going to sidestep the ups and downs in the meantime though.

Bottom line? Unless you're willing to hold onto it for a few weeks and wait for the bigger turnaround to kick in again, you may want to go ahead and lock in a gain here while you can. Once the gap is filled and the mess of support from several moving averages around $0.63 has a chance to stop the pullback and start the rally again, that'll be a great re-entry spot for ZLCS.

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